Crude prices surge led to speculations in forex which triggered rupee fall: SBI report

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PTI New Delhi, Delhi, India Nov 28, 2018, 10.36 PM (IST)

Relentless upward movements in crude prices since July led to increases in speculations in foreign exchange market and such activities seem to have triggered the rupee fall in recent months, an SBI research report Wednesday.

SBI's 'Ecowrap' noted that even as there have been policy changes to liberalise capital inflows, merchant and interbank market foreign exchange turnover give interesting insights regarding the demand-supply matrix of foreign exchange.

In the merchant market (in both spot and forward segment), there was an excess demand in the range of USD 9-14 billion since February 2018. However, in the interbank market, the trend is quite opposite and there has been excess supply.

Specifically, in the month of August, the excess demand in the Merchant segment was far outstripped by oversupply in Inter Bank market, said the report titled 'Rupee for a Turnaround'.

"This indicates that speculation may have triggered a currency fall," it said.

The report further said the Reserve Bank of India should have created a special window for oil marketing companies and have taken out USD 400-450 million daily dollar demand.

The relentless increase in crude prices since July did increase speculative activities in the foreign exchange market that may have been avoided through vaguely right/ proactive measures, it said.

The rupee Wednesday strengthened by 17 paise to close at 70.62 against the US currency as global crude oil prices slipped below the USD 60 per barrel mark amid a smart recovery in domestic equity markets.

The Indian currency had breached the level of 74 against the US dollar in October.

Story highlights

SBI's 'Ecowrap' noted that even as there have been policy changes to liberalise capital inflows, merchant and interbank market foreign exchange turnover give interesting insights regarding the demand-supply matrix of foreign exchange.